Economic Value Added (EVA)
EVA is registered trademark of Stern Stewart.
Economic value added or economic profit is the difference between revenues and costs,where costs include not only expenses, but also cost of capital.
Economic Profit
Best Buy Co. Inc., economic profit calculation
US$ in millions
Based on: 10-K (reporting date: 2022-01-29), 10-K (reporting date: 2021-01-30), 10-K (reporting date: 2020-02-01), 10-K (reporting date: 2019-02-02), 10-K (reporting date: 2018-02-03), 10-K (reporting date: 2017-01-28).
1 NOPAT. See details »
2 Cost of capital. See details »
3 Invested capital. See details »
4 2022 Calculation
Economic profit = NOPAT – Cost of capital × Invested capital
= 2,817 – 20.25% × 7,721 = 1,254
The financial performance from 2017 to 2022 exhibits a significant expansion in value creation, characterized by a substantial increase in economic profit during the final year of the period. While the early years showed volatility and a compression of value, the overall trajectory indicates a marked improvement in operational profitability and capital efficiency.
- Net Operating Profit After Taxes (NOPAT)
- A consistent growth phase is observed following a dip in 2018. NOPAT increased from 1,296 million in 2018 to 2,817 million by 2022. This upward trend suggests a strengthening of core operational earnings and improved profit margins over the five-year recovery period.
- Cost of Capital
- The cost of capital remained relatively stable, fluctuating within a narrow range between 18.46% and 20.76%. The lack of significant variance in this metric indicates a consistent risk profile and a stable environment regarding the required rate of return for investors.
- Invested Capital Management
- Invested capital demonstrated volatility, decreasing in 2018, peaking at 9,079 million in 2021, and subsequently declining to 7,721 million in 2022. The reduction in invested capital in the final year, occurring simultaneously with a rise in NOPAT, indicates an optimization of the balance sheet and improved capital productivity.
- Economic Profit and Value Creation
- Economic profit experienced a decline from 342 million in 2017 to a low of 145 million in 2019. However, a significant reversal occurred thereafter, culminating in a sharp increase to 1,254 million in 2022. This surge represents a substantial increase in the value generated above the cost of capital, driven primarily by the divergence between growing operating profits and a reduced capital base.
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Net Operating Profit after Taxes (NOPAT)
Best Buy Co. Inc., NOPAT calculation
US$ in millions
Based on: 10-K (reporting date: 2022-01-29), 10-K (reporting date: 2021-01-30), 10-K (reporting date: 2020-02-01), 10-K (reporting date: 2019-02-02), 10-K (reporting date: 2018-02-03), 10-K (reporting date: 2017-01-28).
1 Elimination of deferred tax expense. See details »
2 Addition of increase (decrease) in allowances for uncollectible receivables.
3 Addition of increase (decrease) in deferred revenue.
4 Addition of increase (decrease) in restructuring accrual.
5 Addition of increase (decrease) in equity equivalents to net earnings.
6 2022 Calculation
Interest expense on capitalized operating leases = Operating lease liability × Discount rate
= 2,709 × 2.50% = 68
7 2022 Calculation
Tax benefit of interest expense = Adjusted interest expense × Statutory income tax rate
= 93 × 21.00% = 19
8 Addition of after taxes interest expense to net earnings.
9 Elimination of discontinued operations.
The financial data reveals a consistent upward trend in both the net earnings and the net operating profit after taxes (NOPAT) over the examined six-year period. Each year, there is a notable increase compared to the previous period, indicating improving profitability and operational efficiency.
- Net Earnings
-
Starting at $1,228 million in the year ending January 28, 2017, net earnings experienced a decrease in the following year to $1,000 million. However, from 2018 onward, net earnings resumed growth, reaching $1,464 million in 2019, further increasing to $1,541 million in 2020 and $1,798 million in 2021. The most significant growth within the period occurred between 2021 and 2022, with net earnings rising sharply to $2,454 million, marking the highest point in the data set.
- Net Operating Profit After Taxes (NOPAT)
-
NOPAT also demonstrated an overall upward trajectory, beginning at $1,602 million in 2017. It decreased to $1,296 million in 2018, mirroring the decline observed in net earnings. Subsequently, NOPAT increased to $1,580 million in 2019 and continued to grow to $1,799 million in 2020. This positive momentum persisted, with NOPAT reaching $2,197 million in 2021 and further rising to $2,817 million in 2022. The increase in NOPAT in the final year also represents the most substantial annual gain within the timeframe.
In summary, following a temporary dip in 2018, both profitability measures—net earnings and NOPAT—display strong recovery and growth throughout the remaining years. The sustained increase, particularly pronounced in the last two years of the data, signals enhanced profitability and operational success for the company during this period.
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Cash Operating Taxes
Best Buy Co. Inc., cash operating taxes calculation
US$ in millions
Based on: 10-K (reporting date: 2022-01-29), 10-K (reporting date: 2021-01-30), 10-K (reporting date: 2020-02-01), 10-K (reporting date: 2019-02-02), 10-K (reporting date: 2018-02-03), 10-K (reporting date: 2017-01-28).
- Income Tax Expense
- The income tax expense shows considerable fluctuations over the examined periods. It increased substantially from 609 million US dollars in early 2017 to 818 million in 2018, indicating a significant rise. Subsequently, there was a sharp decline to 424 million in 2019, followed by a slight increase to 452 million in 2020. The expense rose again in 2021 to 579 million but stabilized in 2022, with a minor reduction to 574 million. Overall, the trend presents volatility with a notable peak in 2018 and some stabilization towards later years.
- Cash Operating Taxes
- Cash operating taxes followed a somewhat parallel pattern to income tax expense but with distinct variations. Starting at 495 million in 2017, the figure surged to 720 million in 2018, closely mirroring the peak in income tax expense. It then declined sharply to 452 million in 2019 and dipped further to 415 million in 2020, marking the lowest point in the series. A pronounced increase occurred in 2021, reaching the highest value of 642 million, before decreasing again to 579 million in 2022. This pattern indicates a strong correlation with income tax expense, coupled with a more pronounced recovery peak in 2021.
- Comparative Insights
- Both income tax expense and cash operating taxes display significant year-to-year variability, with peaks in 2018 and 2021. The data suggests that while both metrics tend to move in tandem, cash operating taxes exhibit more substantial relative changes, particularly during 2020 to 2021. The decline observed in 2019 and 2020 in both categories could reflect operational or tax policy changes, whereas the rebound in 2021 indicates a possible recovery phase. By 2022, both measures tend to stabilize, remaining close in value compared to earlier years.
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Invested Capital
Best Buy Co. Inc., invested capital calculation (financing approach)
US$ in millions
Based on: 10-K (reporting date: 2022-01-29), 10-K (reporting date: 2021-01-30), 10-K (reporting date: 2020-02-01), 10-K (reporting date: 2019-02-02), 10-K (reporting date: 2018-02-03), 10-K (reporting date: 2017-01-28).
1 Addition of capitalized operating leases.
2 Elimination of deferred taxes from assets and liabilities. See details »
3 Addition of allowance for doubtful accounts receivable.
4 Addition of deferred revenue.
5 Addition of restructuring accrual.
6 Addition of equity equivalents to total Best Buy Co., Inc. shareholders’ equity.
7 Removal of accumulated other comprehensive income.
8 Subtraction of marketable securities.
The financial data reveals several notable trends in debt, equity, and invested capital over the six-year period from 2017 to 2022.
- Total Reported Debt & Leases
- The total reported debt and leases remained relatively stable throughout the period, fluctuating narrowly around the range of approximately 3,900 to 4,100 million US dollars. There was no significant upward or downward trend, indicating consistent leverage levels over the years.
- Total Shareholders’ Equity
- Shareholders’ equity demonstrated a declining trend overall, starting from 4,709 million US dollars in early 2017 and falling to 3,020 million by early 2022. This decline was not linear; there was a drop between 2017 and 2019, a partial recovery in 2021, and then a further decrease by 2022. The equity fluctuations suggest variability in retained earnings or other comprehensive income components, as well as possible impacts from share repurchases or dividend policies.
- Invested Capital
- Invested capital experienced notable fluctuations across the period. It decreased substantially from 6,613 million in 2017 to 5,407 million in 2018, followed by a significant increase to its peak of 9,079 million in 2021. By 2022, there was a reduction but invested capital still remained elevated relative to the 2017 and 2018 levels. These movements indicate shifts in the company’s investments in assets potentially funded through a combination of liabilities and equity, reflecting strategic growth or restructuring activities.
In summary, the company maintained stable debt levels while shareholders’ equity decreased over time. Invested capital showed considerable volatility with a marked increase toward 2021, implying dynamic capital allocation decisions during the period. The divergence between stable debt and declining equity could impact the company’s leverage ratios and financial risk profile, warranting further analysis on profitability and cash flow to assess overall financial health.
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Cost of Capital
Best Buy Co. Inc., cost of capital calculations
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | 22,937) | 22,937) | ÷ | 26,891) | = | 0.85 | 0.85 | × | 23.38% | = | 19.94% | ||
| Total debt3 | 1,245) | 1,245) | ÷ | 26,891) | = | 0.05 | 0.05 | × | 3.02% × (1 – 21.00%) | = | 0.11% | ||
| Operating lease liability4 | 2,709) | 2,709) | ÷ | 26,891) | = | 0.10 | 0.10 | × | 2.50% × (1 – 21.00%) | = | 0.20% | ||
| Total: | 26,891) | 1.00 | 20.25% | ||||||||||
Based on: 10-K (reporting date: 2022-01-29).
1 US$ in millions
2 Equity. See details »
3 Total debt. See details »
4 Operating lease liability. See details »
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | 29,553) | 29,553) | ÷ | 33,737) | = | 0.88 | 0.88 | × | 23.38% | = | 20.48% | ||
| Total debt3 | 1,479) | 1,479) | ÷ | 33,737) | = | 0.04 | 0.04 | × | 2.79% × (1 – 21.00%) | = | 0.10% | ||
| Operating lease liability4 | 2,705) | 2,705) | ÷ | 33,737) | = | 0.08 | 0.08 | × | 2.90% × (1 – 21.00%) | = | 0.18% | ||
| Total: | 33,737) | 1.00 | 20.76% | ||||||||||
Based on: 10-K (reporting date: 2021-01-30).
1 US$ in millions
2 Equity. See details »
3 Total debt. See details »
4 Operating lease liability. See details »
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | 13,026) | 13,026) | ÷ | 17,184) | = | 0.76 | 0.76 | × | 23.38% | = | 17.72% | ||
| Total debt3 | 1,360) | 1,360) | ÷ | 17,184) | = | 0.08 | 0.08 | × | 5.02% × (1 – 21.00%) | = | 0.31% | ||
| Operating lease liability4 | 2,798) | 2,798) | ÷ | 17,184) | = | 0.16 | 0.16 | × | 3.30% × (1 – 21.00%) | = | 0.42% | ||
| Total: | 17,184) | 1.00 | 18.46% | ||||||||||
Based on: 10-K (reporting date: 2020-02-01).
1 US$ in millions
2 Equity. See details »
3 Total debt. See details »
4 Operating lease liability. See details »
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | 19,041) | 19,041) | ÷ | 23,054) | = | 0.83 | 0.83 | × | 23.38% | = | 19.31% | ||
| Total debt3 | 1,398) | 1,398) | ÷ | 23,054) | = | 0.06 | 0.06 | × | 4.89% × (1 – 21.00%) | = | 0.23% | ||
| Operating lease liability4 | 2,615) | 2,615) | ÷ | 23,054) | = | 0.11 | 0.11 | × | 4.10% × (1 – 21.00%) | = | 0.37% | ||
| Total: | 23,054) | 1.00 | 19.91% | ||||||||||
Based on: 10-K (reporting date: 2019-02-02).
1 US$ in millions
2 Equity. See details »
3 Total debt. See details »
4 Operating lease liability. See details »
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | 19,485) | 19,485) | ÷ | 23,592) | = | 0.83 | 0.83 | × | 23.38% | = | 19.31% | ||
| Total debt3 | 1,412) | 1,412) | ÷ | 23,592) | = | 0.06 | 0.06 | × | 5.12% × (1 – 33.70%) | = | 0.20% | ||
| Operating lease liability4 | 2,695) | 2,695) | ÷ | 23,592) | = | 0.11 | 0.11 | × | 4.26% × (1 – 33.70%) | = | 0.32% | ||
| Total: | 23,592) | 1.00 | 19.83% | ||||||||||
Based on: 10-K (reporting date: 2018-02-03).
1 US$ in millions
2 Equity. See details »
3 Total debt. See details »
4 Operating lease liability. See details »
| Capital (fair value)1 | Weights | Cost of capital | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Equity2 | 13,864) | 13,864) | ÷ | 17,886) | = | 0.78 | 0.78 | × | 23.38% | = | 18.12% | ||
| Total debt3 | 1,447) | 1,447) | ÷ | 17,886) | = | 0.08 | 0.08 | × | 5.53% × (1 – 35.00%) | = | 0.29% | ||
| Operating lease liability4 | 2,575) | 2,575) | ÷ | 17,886) | = | 0.14 | 0.14 | × | 6.88% × (1 – 35.00%) | = | 0.64% | ||
| Total: | 17,886) | 1.00 | 19.05% | ||||||||||
Based on: 10-K (reporting date: 2017-01-28).
1 US$ in millions
2 Equity. See details »
3 Total debt. See details »
4 Operating lease liability. See details »
Economic Spread Ratio
Best Buy Co. Inc., economic spread ratio calculation, comparison to benchmarks
| Jan 29, 2022 | Jan 30, 2021 | Feb 1, 2020 | Feb 2, 2019 | Feb 3, 2018 | Jan 28, 2017 | ||
|---|---|---|---|---|---|---|---|
| Selected Financial Data (US$ in millions) | |||||||
| Economic profit1 | 1,254) | 312) | 387) | 145) | 223) | 342) | |
| Invested capital2 | 7,721) | 9,079) | 7,649) | 7,210) | 5,407) | 6,613) | |
| Performance Ratio | |||||||
| Economic spread ratio3 | 16.24% | 3.44% | 5.05% | 2.01% | 4.13% | 5.17% | |
| Benchmarks | |||||||
| Economic Spread Ratio, Competitors4 | |||||||
| Amazon.com Inc. | -21.75% | -1.99% | — | — | — | — | |
| Home Depot Inc. | 21.36% | 12.21% | — | — | — | — | |
| Lowe’s Cos. Inc. | 21.62% | 9.17% | — | — | — | — | |
| TJX Cos. Inc. | 4.26% | -12.59% | — | — | — | — | |
Based on: 10-K (reporting date: 2022-01-29), 10-K (reporting date: 2021-01-30), 10-K (reporting date: 2020-02-01), 10-K (reporting date: 2019-02-02), 10-K (reporting date: 2018-02-03), 10-K (reporting date: 2017-01-28).
1 Economic profit. See details »
2 Invested capital. See details »
3 2022 Calculation
Economic spread ratio = 100 × Economic profit ÷ Invested capital
= 100 × 1,254 ÷ 7,721 = 16.24%
4 Click competitor name to see calculations.
The analysis of economic value creation reveals a period of significant volatility followed by a substantial expansion in value generation. Between 2017 and 2022, the efficiency of capital utilization fluctuated, culminating in a sharp peak in the final year of the period.
- Economic Spread Ratio Trends
- The ratio exhibited a downward trajectory from 5.17% in 2017 to a period low of 2.01% in 2019. A recovery occurred in 2020, with the ratio rising to 5.05%, before retreating to 3.44% in 2021. A significant upward shift was observed in 2022, where the ratio climbed to 16.24%, indicating a drastic improvement in the spread between the return on invested capital and the cost of capital.
- Economic Profit Performance
- Economic profit mirrored the volatility of the spread ratio, declining from US$ 342 million in 2017 to US$ 145 million in 2019. While profit figures remained moderate between 2020 and 2021, a substantial increase was recorded in 2022, with economic profit reaching US$ 1,254 million. This surge represents the highest level of absolute economic value added across the analyzed timeframe.
- Invested Capital Dynamics
- Invested capital showed a general upward trend from 2018 (US$ 5,407 million) through 2021, peaking at US$ 9,079 million. However, in 2022, invested capital decreased to US$ 7,721 million. The simultaneous increase in economic profit and the reduction in invested capital during 2022 suggests a significant optimization of the capital base, resulting in superior capital efficiency and enhanced value creation.
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Economic Profit Margin
Best Buy Co. Inc., economic profit margin calculation, comparison to benchmarks
| Jan 29, 2022 | Jan 30, 2021 | Feb 1, 2020 | Feb 2, 2019 | Feb 3, 2018 | Jan 28, 2017 | ||
|---|---|---|---|---|---|---|---|
| Selected Financial Data (US$ in millions) | |||||||
| Economic profit1 | 1,254) | 312) | 387) | 145) | 223) | 342) | |
| Revenue | 51,761) | 47,262) | 43,638) | 42,879) | 42,151) | 39,403) | |
| Add: Increase (decrease) in deferred revenue | 392) | 210) | 55) | (7) | 35) | 61) | |
| Adjusted revenue | 52,153) | 47,472) | 43,693) | 42,872) | 42,186) | 39,464) | |
| Performance Ratio | |||||||
| Economic profit margin2 | 2.40% | 0.66% | 0.88% | 0.34% | 0.53% | 0.87% | |
| Benchmarks | |||||||
| Economic Profit Margin, Competitors3 | |||||||
| Amazon.com Inc. | -11.35% | -0.85% | — | — | — | — | |
| Home Depot Inc. | 6.79% | 4.59% | — | — | — | — | |
| Lowe’s Cos. Inc. | 5.88% | 2.90% | — | — | — | — | |
| TJX Cos. Inc. | 1.73% | -8.77% | — | — | — | — | |
Based on: 10-K (reporting date: 2022-01-29), 10-K (reporting date: 2021-01-30), 10-K (reporting date: 2020-02-01), 10-K (reporting date: 2019-02-02), 10-K (reporting date: 2018-02-03), 10-K (reporting date: 2017-01-28).
1 Economic profit. See details »
2 2022 Calculation
Economic profit margin = 100 × Economic profit ÷ Adjusted revenue
= 100 × 1,254 ÷ 52,153 = 2.40%
3 Click competitor name to see calculations.
An analysis of the economic profit margin from 2017 to 2022 reveals a period of volatility followed by a significant expansion in value creation. While adjusted revenue exhibited consistent year-over-year growth throughout the period, the economic profit margin fluctuated, indicating a varying ability to generate returns exceeding the cost of capital.
- Revenue and Economic Profit Correlation
- Adjusted revenue demonstrated a steady upward trajectory, increasing from US$ 39,464 million in 2017 to US$ 52,153 million in 2022. In contrast, economic profit did not scale linearly with revenue. Absolute economic profit declined between 2017 and 2019, falling from US$ 342 million to US$ 145 million, before rebounding sharply in subsequent years.
- Economic Profit Margin Fluctuations
- The economic profit margin experienced a contraction phase from 2017 to 2019, decreasing from 0.87% to a low of 0.34%. A recovery was observed in 2020 as the margin returned to 0.88%, followed by a moderate decline to 0.66% in 2021. These fluctuations suggest that the cost of capital or operational inefficiencies impacted value creation more significantly than revenue growth during the early part of the period.
- Analysis of the 2022 Peak
- The fiscal year ending January 29, 2022, represents a significant inflection point in financial performance. Economic profit surged to US$ 1,254 million, and the economic profit margin reached a peak of 2.40%. This surge indicates a substantial increase in the efficiency of capital utilization and a marked improvement in the company's ability to generate economic value relative to its revenue base.
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